RESERVE BANKING

Evening Post, Volume CVII, Issue 129, 5 June 1929, Page 14

RESERVE BANKING

'^!S^iteiiAN'; vie^

ym COMMONWEALTH BANK

"Evening Post," sth June*

'. ,-raperisi once read at philosophical and societies,'are usually entombed in ;'■. tie':'proceedings (if "printed at all), and teach that section of the general interested in the particular sub",jict. ; THe paper read at: some scientific say, at a meeting of the Bri'^tißh' Asosciation; is likely to appear in abridged form in" the daily Press. Space has, of course, to be found for the president's • address, but papers are usually briefly and not always accurately summarised.. For' this there may be two reasons -2ji'3^liimitationß-:of the sizeof the newspaper pagejvand (2) lack of precise knowledge of" the 'subject of the particular p»s!arite'--''v 1 ■ '■../ :-., :.; v'

rMr.iiilfred C.Davidson, general manager ofith«rßank of New South Wales, read a P*R«i-<» "Central Reserve Banking" be-, fofe 'tHe -IPerth :brancn of the Economic Society of Australia and New.> Zealand. At that time he was inspector in Western Australia for the Bank of New South Wales:: Now the excellent journal of this society, is likely to reach very few hands beyond those of its members, although leg-. igliLttirs; and- those who hope to become ntembere. of the Parliament of the Commonwealth and States of Australia and of New' Zealand could not do; better than carefully study the! contents of this 'journal,' .not necessarily, to accept all it containsj but to' take it" as a reflection of some'of the-best-trained minds of economists in;both countries. : ilxi DaVidson has had published "Centr^'SeVeWe'BaßMng," by Angus and Robertson, Sydney, and it appears in such a form- as to" ensure its careful reading by all.-:.; dnrectly; : or 'indirectly'interest-: ed-^in.,Jthe''financial; 'affairs of Australia^ ;: and'" New 'Zealand.' Increas-;, ing—'attention' is Ybeing paid, in: Austraj&j at anyrate, tothe functions of the CeMral'Biuffian'dthe; necessity for setting up^an institution' to. provide central bankihgtfacilities;';* It, does: not follow, that realisation ■of the need for such a bank means that the progress and soundness of • the existing banking system is in doubt. Mr; Davidson is fortunate in having his littla work introduced by-Professor Shand, I one) of the most lucid and' attractive writera, in Australia, Qn^finance: and economics generally. .Th^e'professorvtouches lightly • upon "frozen!*'advances and the paralysing effects on any country's productivity when bankers with one voice are constrained to ■*jji? -:**7i ■rSfo'^and "Don't" at the one time; '^i-T'TAeCXTentraT, Reserve .Bank comes in very fej-'i ;u4Htil'at jsiicli critical, times, because it is Mr*?.- iea3^9Sr*tbe.;bank;'o£",the.; banks to: take —:—- oyei;•"enough"of their assets to put them "iififunds'fSr' continued active lending. Professor Shand describes Mr. Davidson's con- ; tribution to" the subject of the Central Reserve Bank as "valuable 1," making clear *;:,.:=;the.-4jfference between, the character of such an ■ emergency bank . . . and the —-—ambitions of a political bank eager to set rai: it«elf-.iip as a Colossus of finance." ifiil > JSlriSDavidson traces the origin of "centralreserve banking. : to the passing of ;v?r;-the? Bank; Act of 1844, arid Be shows' how .'::•; -it; ha S he'coine prominent during the last •r. v v twenty years,- specifically mentioning the :,.. : United States, crisis o£l9o7—the' effects of : which were .felt even in New Zealand— •'■"'• ,yWch' brought the Sederal Reserve system .'•'"''into being -in, America. The Great War and its after-effects only tended to emphasise, the ralue. of .the Central Reserve Bank Sir Ernest Harvey, the eminent siv;'.s-firitishc authority, .defined 'the .functions o£ ,-vft. jthe .C.e,ntraUßeserve Bank, as,an institu- ;' ~ tion ;that •snouTd not* ordinarily "compete -v. with the" trading.banks, for general bank- "'■ ; ing business, nor take moneys at interest — ■•-ori-its-own account; its assets should.be of the-mpst liquid character possible, in management and policy.it should be free from , Gorernnient control and from the influ- > of politics. ...:■'■ "■■-.^The Commonwealth Bank> as Mr. Davidson points "out; does not fulfil all these conditions,\and it was not founded to do ' a 0.... It was originally'intended to c0m- ...., ,j|^e.wit]i existing banks mr Australia and t- .^iantinueg to do so. Business: that -would • r ;-haye gone tp_ those banks in the.ordinary ..?.'; Xotirsei business 6f.a kind, that-is done "by;the banks operating in New Zealand, wais handed over to the Commonwealth :;. :.i.Bank,..-whjph was ,made; the sole bank of ; ; : "" issue of nbtes.'r: '""' : ': -•■■--•;.•■ •>.

The Commonwealth Bank is also com-peting-with the other banks in making advances as, well»_ as in taking deposits. Butj as Mr. Davidson points out, it is not ■ fulfilling the requirements of a cen-tral-reserve bank, notwithstanding the public announcements of its directors on many-occasions that it is their intention that it, should fulfil such requirements. The. Central Reserve Bank's functions are simply ■ explained by the author.' It has/he writes, come to be looked upon as-analogous to a large public trust, and less as' a' Department of State. But the Government: may have some influence in regard to the constitution of its governing body. But| he, remarks that only two important banks are quite independent on Paper-rthe Bank of England and the German.iieichsbank. He holds that "the authorities of the.Central Reserve Bank should be looked'to not only by .the community but. also; by the Government, as holding the position of an important national trust, too important and too sacred to be interfered with. Mr. Davidson's little work will be.read with as much interest by the ■i man_in the street as by those whose work is directly connected with banking and finance. „ ' • ,